Proposal:
Consider Amendments to Subparagraph (f)(7) of Rule 2202 - On-Road Motor Vehicle Mitigation Options Pertaining to Fees for the Air Quality Investment Program.
Synopsis:
At the February 1996 Board Hearing, the Governing Board continued the discussions regarding the evaluation of appropriate fees for participation in the Air Quality Investment Program (AQIP).
Committee:
Mobile Source, March 29, 1996, No action.
Recommended Action:
Maintain the current fee levels for the Air Quality Investment Program until further implementation experience is gained.
James M. Lents, Ph.D.
Executive Office
BW:CLW:CD:ENL
Background
At the time of adopting Rule 2202 - On-Road Motor Vehicle Mitigation Options, the Governing Board directed that additional analysis on the fees for participation in the Air Quality Investment Program (AQIP) be performed. The AQIP is one of the compliance options available under Rule 2202. The AQIP is designed to allow all regulated employers to meet their emission equivalency target through this program, should they so choose.
Upon registering under this option and submitting the designated investment amount, an employer is considered to be in compliance with the rule and there is no need for further action to reduce mobile source emissions. The monies are placed into an AQMD-administered restricted fund. The collected monies are to be used to fund alternative mobile source emission reduction strategies that reduce mobile source emissions at a more cost-effective rate and that potentially could result in greater overall emission reductions.
In effect, an employer using the AQIP compliance option is transferring to the AQMD the responsibility to achieve emission reductions equivalent to the pooled emission reduction targets of all employers participating in the fund. The AQMD becomes an intermediary responsible for funding programs that will obtain, through the contract process, equivalent emission reductions/air quality improvements.
At its December 1995 meeting, the Governing Board directed that additional information on the most appropriate schedule for AQIP fees be developed and that a public hearing be scheduled to further consider the fee amendments. Any change to the fee amounts could be made by simply adjusting the dollar values found in Rule 2202 (f)(7)(A) and (B) (see Attachment A).
The concept of the AQIP initially was introduced in Rule 1501.1 as one of the alternative compliance strategies to the rescinded rideshare rule (Rule 1501). The annual AQIP fee established in Rule 1501.1 is $110 per employee who reports to the worksite during the 6 a.m. to 10 a.m. peak window. This fee was based on the findings of the 1992 Ernst & Young survey conducted to assess the basin-wide average cost of implementing a rideshare plan. Rule 1501.1 went into effect July 1, 1995. Implementation experience during the first quarter after the rule's adoption revealed that the AQIP emission reduction goals can be achieved significantly more cost-effectively compared to the $110 per employee fee level established in Rule 1501.1 by implementing emission reduction strategies such as old-vehicle scrapping. As a result, when the AQIP was included as a compliance option in Rule 2202, the AQIP fees were lowered by approximately 45% and 62% for annual and triennial compliance options, respectively.
Proposal
Staff proposes to maintain the AQIP fees at current levels until further implementation experience is gained. Amendments to Regulation III - Fees later this year will reflect this action. A new Rule 311 will be proposed to address the AQIP specifically, and will deal with the unique feature of fees established by market forces. In the event that Rule 311 is not adopted, the AQIP will continue to be subject to Rule 306.
Subparagraph (f)(7) transfers the AQIP fee schedule to Regulation III starting July 1, 1996. Thus, the Board will have an opportunity to reevaluate the AQIP fee schedule annually at mid-year.
Policy Issues
The current AQIP fees are set towards the lower end of the cost range as established by market conditions. However, other options under Rule 2202 are also more cost-effective than the $110 per employee previously estimated. The estimate of the AQIP fee should also consider implementation of options other than old-vehicle scrapping.
Staff conducted a survey of AQMD-certified scrappers to further document the current cost of old-vehicle scrapping and to establish a "default" estimate of annual cost per employee relative to the cost of participating in the AQIP. The emission credits from old-vehicle scrapping for Rule 2202 compliance can be priced per vehicle, per employee, per pound of emission, or per year. The implementation cost for an employer will vary significantly depending on the number of employees to be covered or the number of years for which credits are being secured. The contract cost for old-vehicle scrapping includes the old-vehicle purchase price, staffing, advertising, and other administrative costs. Usually the contract cost of scrapping is equated in per-vehicle terms.
The survey revealed that old-vehicle scrapping currently costs between $700 to $1,000 per vehicle depending on the number of vehicles to be purchased and the service provider. The price per vehicle equates to a three year cost of $99 to $144 per employee per year (Attachment B). This range is based on variances such as economies of scale and model year of the vehicles scrapped.
Purchasing old-vehicle scrapping emission credits for only one year would incur a 40% increase in cost, added to the annualized three-year cost per employee per year. This results in a one year cost between $46 to $67 per employee for the purchase of emission credits from old-vehicle scrapping. The increase results from scrappers having to encumber funds for the second and third year credits, and the risk of holding limited life emission credits which may reduce their marketability in future years.
Staff has reviewed the overall program cost from scrapping through the creation of the MSERC. Based on past experience with AQIP submittals and review of current market strategies, the present per employee pricing structure of $60 annually and $125 triennially appears to be a reasonable rate at this time. This pricing strategy accounts for differences in economies of scale, one-year versus three-year purchase commitments, and AQMD administrative costs. Furthermore, the rule pricing structure would continue to make direct vehicle scrapping purchases, without AQMD participation, a viable alternative to some employers. An employer who uses the scrapping option will be directly responsible for eliminating the emissions from high-polluting vehicles.
AQMP & Legal Mandates
Not applicable.
CEQA & Socioeconomic Analysis
Relative to consideration of adjusting the Rule 2202 fees, the AQMD has reviewed the proposed project pursuant to California Environmental Quality Act (CEQA) Guidelines Section 15002(k) - Three Step Process, to determine which type of CEQA document to prepare for the proposed action. The AQMD has determined that any action relative to adjustment of fees is exempt from CEQA pursuant to CEQA Guidelines Section 15061(b)(3) - Review for Exemption, since the activity is covered by the general rule that CEQA applies only to projects which have the potential for causing a significant effect on the environment.
Implementation Plan
Not applicable.
Resource Impacts
The establishment of the AQIP fees will not affect the AQMD budget, nor will it impact current staffing levels.
Attachments
A - Rule 2202 (f)(7)
B - Car Scrapping Cost Survey Results
aqip03a.doc
Attachment A
(f) On-Road Vehicle Mitigation Options
(A) Annually submit $60 for each employee reporting to work in the peak window; or(B) Triennially submit $125 for each employee reporting to work in the peak window.
The District shall use these funds to obtain an emission reduction or air quality benefit that is equivalent to the sum of the ERTs for all participating employers in the AQIP. The air quality investment fees shall be valid until July 1, 1996. At such time the air quality investment fees shall be subject to Rule 306, and evaluated and adjusted annually to reflect market forces.
Attachment B
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Per Vehicle Cost * 3-Year Cost
Per Employee
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Scrapper A $700 $99
Scrapper B $850 $120
Scrapper C $1,000 $144
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* As of December 5, 1995.
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Rule 1501.1 Rule 2202
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Annual Fee $110 $60
Triennial Fee $330 $125
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